For management at Micro Focus (MCRO), the half-year to April 2019 was a period of “steady progress”. A glance at the income statement might lead some to question this description. But the software group’s rate of top-line decline (down 5.3 per cent at constant currencies) was in keeping with its full-year guidance – which it has reiterated – of minus 4 per cent to minus 6 per cent.
Licence revenues were down by 11.1 per cent, after a higher-than-expected fall in security sales – prompting broker Numis to note that “there is still considerable work to do”. Maintenance revenues edged down just 1 per cent. Here, Micro Focus says it continues to see renewal rates consistent with its history. Meanwhile, as per the group's expectations, software-as-a-service and other recurring revenue declined by 8.3 per cent. Having moved to rationalise its unprofitable operations – and having refocused its resources – it now aims for more sustainable growth, at a better profit margin.
The integration of Hewlett Packard’s (HPE) software business – acquired in 2017 – is ostensibly running to plan, albeit it remains a “complex and significant” project. Cost savings stemming from this integration programme underpinned a rise in the adjusted cash profit margin from 37.2 per cent to 40 per cent. In turn, continuing cash profits came in at $662m (£523m) – up by 1.8 per cent at constant exchange rates.
The six-month period also saw a major disposal, after Micro Focus offloaded its SUSE business in March for $2.5bn. Between announcing the disposal and its completion, the group returned just over $0.5m to shareholders via share buybacks, before making a further return of $1.8bn. Good news for income-seeking investors – although the sale did dent earnings. Were we to factor SUSE back into the equation, EPS would have landed at 335¢ – up by a considerable 136 per cent.
Numis expects adjusted pre-tax profits of $1.07bn and EPS of 204¢ for the year to October 2019, against $10.8bn and 206¢ in FY2018.
MICRO FOCUS (MCRO) | ||||
ORD PRICE: | 1,753p | MARKET VALUE: | £6.02bn | |
TOUCH: | 1,753-1,756p | 12-MONTH HIGH: | 2,175p | LOW: 1,125p |
DIVIDEND YIELD: | 6.9% | PE RATIO: | na | |
NET ASSET VALUE: | 2,011¢* | NET DEBT: | 29% |
Half-year to 30 Apr | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
2018 | 1.79 | -101 | 138 | 58.3 |
2019 | 1.66 | -99.6 | -18.8 | 58.3 |
% change | -7 | - | - | - |
Ex-div: | 5 Sep | |||
Payment: | 30 Sep | |||
£1=$1.25*Includes intangible assets of $13.2bn, or 3,843¢ a share |